Silver, Gold and SP 500: Trend Change Due

By: GE Christenson | Mon, Jan 6, 2014
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Article written January 2, 2014

The year 2013 was a great year for the S&P and a terrible year for silver and gold investors. There are many indications that it is time for a reversal.

If a market moves too far (up or down), too fast, or for too long, expect a reversal. Examples:

The fundamentals for these markets did not change from normal to fantastic to terrible in a short time. It is clear that High Frequency Trading (HFT) algorithms, speculators, momentum players, the Fed, and others pushed the markets higher or lower to unsustainable levels and then reversed those markets.

How do silver prices compare to the S&P? Examine the data back to 1975 and calculate the ratio of the price of silver to the S&P 500 index. We see that:

SI / SP Ratio and Linear Trend
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Silver versus Ratio Deviation From Linear Trend
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Silver prices are too low compared to the S&P 500 index. What else supports that analysis?

Silver versus Devaiation from 40 week MA
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Silver Long Cycles:
Date Comment Time since last low

Feb. 1993 Important low
July 1997 Low 4.4 years
Nov. 2001 Important low 4.3 years
Aug. 2005 Low 3.7 years
Oct. 2008 Important low 3.2 years
June 2013 Important low 4.7 years
(Average 4.1 years)

It seems likely that the June 2013 will not be broken, or if it is, only briefly.


Silver Shorter Cycles:
Date Comment Time since last low

June 2006 Intermediate low
Aug. 2007 Intermediate low 14 months
Oct. 2008 Important low 14 months
Feb. 2010 Intermediate low 16 months
May 2011 Intermediate low 15 months
June 2012 Intermediate low 13 months
June 2013 Important low 12 months
(Average 14 months)


Conclusions

Silver and gold prices have been forced lower in the paper markets while the S&P has been levitated with zero-interest rates, HFT and QE. The financial powers-that-be, the political and financial elite, Wall Street, China, India, Russia, and the U.S. Treasury have all benefitted from the suppression of gold and silver prices. Most have also benefitted from QE and the S&P levitation. The surprise is not that gold and silver prices have been pushed lower after their 2011 blow-off rallies, but that the "smack down" has lasted so long in the face of such strong physical demand.

Regardless, regression to the mean is relevant, even in manipulated markets. Expect a trend change in 2014 and much higher gold and silver prices as they rally above their 200 day moving averages.

The ratio of silver prices to the S&P is back to 2008 levels and substantially below the linear trend since 2006. Expect the ratio to regress (rise) to its mean while silver prices rally substantially from here.

Both long and short term time cycles indicate that an important bottom occurred in June of 2013. It appears that a double-bottom occurred in December of 2013. If this double-bottom holds, time cycles suggest that silver will rally strongly in 2014.

 


Suggested Reading:

Bill Holter: Selling the Family Jewels
Andy Hoffman 2014 Predictions
The DI: Gold, Silver and the National Debt
Bill Bonner: Hold onto Your Gold!

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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